Letter from the CEO: Market Update May 21, 2020
By: Frank McGuigan, CEO, Transplace
As businesses begin to reopen amid COVID-19, we are seeing new demand patterns related to business reopen plans, seasonality in business verticals, and other COVID-19 related impacts. To bring visibility to where the market demand pattern is not following historical patterns, we will continue to support our customers and partners with the latest industry information, as well as provide expert best practices in navigating these unique challenges.
In addition to the information below, you will find our most recent quarterly market update, which illustrates a deeper investigation into what is happening in the market. Since the quarterly report, we’ve seen several indicators that the market is turning. Shipper demand is still muted, and spot rates are not as strong as usual, but it appears that trucking rates may have seen the bottom. As a result, we feel like the current situation warranted an update.
We will continue to provide you updates in near real time when appropriate.
North American Market
- Intermodal volume hit the bottom in the middle of April, down as much as 18%-20% year-over-year. Volume improved slightly in late April through the first half of May but is still running down 13%-15% year-over-year.
- 40’ Containers:
- The supply of equipment did improve in the second half of April and for the most part that has been sustained into May. While import volume dropped back off, export volume is also down. The only market that stands out with a concern on supply is Kansas City.
- Most of the customers that had shifted away from 40’ equipment to 53’ equipment in March and April have shifted back to 40’ equipment.
- 53’ Containers:
- Equipment has continued to be plentiful across the country.
- There is plenty of dray capacity available across the country.
- If your transit time requirements allow for intermodal, this is a great time to pursue spot rates as well as long-term pricing.
U.S. Truckload Capacity
- We are starting to see the spot market stabilize.
- There is shipper concern for potential “paper rates” in RFP’s but that has not steered them away from taking the savings. Shippers continue to see favorability in the RFP process.
- TL savings range from the mid-single digits to low teens.
- Visibility of RFP’s remains high in organizations as C-suites look at all cost levers.
- Overall LTL shipment counts are down around 20%.
- Shipment count is beginning to increase from various carriers.
- Average weight per shipment is up.
- Bulk tank truck capacity remains strong with first and second tender acceptance at mid-ninety percent levels.
- There has been an uptick in bulk volume which is indicative of business levels starting to rebound. Rates are remaining competitive and the market is wide-open for review and RFP’s.
- The spot rate market for bulk is seeing a higher level compared against the past eight weeks. We expect this trend to continue.
- There continues to be a low number of cases of COVID-19 reported by carriers within their driver fleet.
- Carriers are continuing to see that more shipping facilities are requiring the use of Personal Protective Equipment (PPE).
- We are continuing to see heavy freight solicitation from our carrier base. New carriers are pricing aggressive to gain market share.
- We continue to hear rumblings of carrier financial trouble. Transplace is monitoring this situation closely and has put routing guide contingency plans in place for several carriers.
Mexico and Cross-Border
- Mexican government has launched its plan to reopen the economy and start releasing the country’s lockdown. This plan will have three phases:
- Phase 1: As of May 18, the government will allow 269 municipalities scattered over 15 states with low to non-confirmed coronavirus cases to resume most activities. These municipalities represent only 10% of total municipalities in the country.
- Phase 2: Companies that work for the new group of essential sectors will require to submit to authority’s health protocols. Government will confirm within 72 hours if the protocols are approved in order to resume operations on June 1.
- Phase 3: Starting June 1, the rest of municipalities and states will work under a scale of colors representing the state of alert and COVID-19 emergency. The government will assign a color each week, starting June 1, that will indicate the extent to which businesses, schools, and public gathering places can resume activities.
- Three major industries: mining, construction, and automotive are now part of the essential sectors and were able to resume operations on May 18, aligned to Phase 2 protocols.
- U.S. – Mexico border crossing restrictions for non-commercial, non-essential operations have been extended until further notice.
- U.S. and Mexico customs operations continue as usual with no schedule restrictions; minor delays with no major impact for airport and ocean clearances.
- We expect the exchange rate to stay between this range in May and June and start stabilizing in Q3 around 23 pesos per dollar.
Canada and Cross-Border
- The re-opening of the economy has been left to the individual provinces and thus Canada will see regional differences in the pace and scope at which the economy will open. Assuming there is no upswing in incidences of infection, Canada will experience a more gradual resumption of economic activity than what is likely in the U.S.
- At this point, there is not the same level of concern over carrier’s financial stability with Canadian carriers as appears to be within the U.S.
- Most dry van carriers saw a decline in activity but were able to mitigate much of the cost implications by furloughing drivers, freight handlers (dockman), and back-office staff.
- Carriers in the temp-control segment were able to hold volumes flat or only experienced a small fall-off. It will be interesting to see whether the back half of 2020 is witness to carrier consolidation in the Canadian market.
- Based on spot market data from the Transcore / Link Logistics database, rates within Canada have softened since mid-March between 4 and 14% depending on the lane / market. Dry van rates on the very competitive and heavy volume Toronto – Montreal market are only down 4 and 6%, with an actual up-tick in rates over the past week. Much of this decline is driven by a sizable fall-off in fuel prices.
- From a shipment volume perspective, we are seeing CPG products such as food and household products continuing to trend upwards, which aligns with year-over-year volume upticks through the mid-March through early-May period. For many Canadian shippers, manufacturing, automotive, and retail (clothing / furniture) has been negatively impacted as generally is the trend for these segments. Based on the above three points, one can make the argument that the Canadian transport industry has not been as impacted by the pandemic as the U.S. market.
- As in the U.S., we are seeing a much greater level of outreach and engagement from carriers that we either have not done business with recently or carriers entirely new to the organization.
- The U.S. border with Canada still remains closed to non-essential travel.
Ocean and Air
- Carriers continue to blank sailings through July and August, although we have seen a couple carriers reinstitute a sailing after initially blanking.
- There is a 3 to 4-week lead time needed for ocean booking space confirmations due to ongoing limited vessel sailings.
- Spot rate market from Asia to U.S. remains relatively flat with moderate movements lately, however, from the carrier perspective the market is overall stable.
- Majority of countries are re-opening gradually and cargo flows are re-emerging as shippers and manufacturers increase activities.
- The air freight market is still extremely volatile. Space constraints remain and spot market pricing is highly unpredictable.
- CMA CGM and Hyundai secured funding through government backed loans to bolster cash positions due to impact of declining container volumes and ocean freight demand from COVID-19.
- Concern is growing on containership crew members that have been working nonstop and unable to return to their home countries for scheduled breaks through crew shift changes due to country bans and lack of commercial flights.
- Availability of low-sulfur fuel is plentiful. Global demand for marine fuel specific to the container shipping sector is down ~ 10% YTD. Certain carriers such as CMA CGM and Maersk Line suspended low-sulfur fuel surcharges. Fuel scrubber installations by carriers have slowed with the falling price of oil.
- At least 20 sailings between Asia, Europe, and the U.S. East Coast have diverted via the Cape of Good Hope rather than using the Suez Canal due to low bunker fuel prices saving carriers between $700,000 to $900,000 in toll fees.
- Intra-European road freight is still flowing. Waiting times at border crossings are getting close to normal again. A map of the delays can be found HERE.
- A small number of sailings have been reinstated on the trans-Pacific and Asia- Mediterranean trades as economies take their first small steps towards reopening and carriers try to get the supply-demand balance right.
- IHS Markit economists are forecasting a severe eurozone recession. There is little chance of a rapid recovery in volume that could underpin any rate recovery on the Asia-Europe trades.
- Overall there is sufficient transport capacity, but there is variation per industry segment. Spot rates in general have increased due to imbalances in networks.
- Continue to access the risk of bankruptcy on providers and know which providers have been over invested in your network, particularly highly strategic regional carriers that may have a high amount of freight within your network.
- Stick with normal bid schedules. No need to postpone. Most shippers bid on annual cycles roughly, and we consider that regular re-alignment of your network with your carriers’ networks is best practice.
- When spot market is extremely aggressive and presents opportunities, you can modify your bid strategy to hold back some freight for spot market – do not award 100% of the volume on all lanes or publish as many rates, etc.
- Continue to do mini-bids and/or send freight to spot when a new lane comes up, a carrier’s performance warrants a change, etc.
- Increase focus and reduce update cycles in providing relevant data as it applies to transportation capacity forecasting.
- Evaluate opportunities to leverage spot market opportunities.
- Closely monitor and implement guard rails with action for when carriers fall out of process. Take FAM privileges away for non-performance and protect incumbents who are performing.
- Optimize fleet performance (size fleet, optimal lane assignment, backhauls).
- Determine and communicate expectations with carriers on fuel policies as diesel prices may flirt with below peg fuel prices.
- We are continuously evaluating market risk, capacity, and opportunity across the network by origin, mode, and/or lane type.
- Our transportation professionals are able to help with on-time service and network optimization, and continue to offer procurement, consulting, and engineering expertise.
- We recommend leveraging Transplace Network Services to find dynamic continuous moves, planned continuous moves (LaneHub), TransMATCH cross-client collaboration, dedicated fleet, and LTL Pool opportunities to increase your capacity options, reduce your costs, and reduce your carbon footprint.
- Transplace TMS tools including Control Tower, service risk prediction model, and machine learning for real-time, end-to-end visibility can mitigate risks and improve the effectiveness and efficiency of your supply chain.
We remain committed to you and value your partnership. We will continue to provide you updates as necessary and encourage you to reach out to us with any questions or concerns you may have.